Government Must Take Prompt, Decisive Action as Spectrum Deficit Looms for American Consumers

This article is a discussion about the allocation of spectrum. As always, the Federalist Society takes no position on particular legal or public policy initiatives. Any expressions of opinion are those of the authors. The Federalist Society seeks to further discussion on spectrum and the relationship between government and technology. To this end, we offer links below to different perspectives on the issue, and we invite responses from our audience. To join this debate, please email us at info@fed-soc.org.

Spectrum connects us to the rest of the world via our mobile devices—the on ramp to the Internet in the palms of our hands, on the go, anytime. And these devices are so popular and increasingly necessary that our country has more mobile phone subscriptions than people as of 2012.1 However, the threat of overload is near as this exploding consumer demand has put a crunch on current spectrum holdings, and availability of new spectrum for mobile is low. With smartphones and tablets on the rise, data traffic is continually increasing to the point of congestion on our nation’s wireless networks. Without making additional spectrum available for commercial uses our communications economy and our global competitiveness will be at risk.

But spectrum is a scarce and finite public resource, and the only way for additional spectrum to be made available is through government action. And there is the rub: the government not only oversees the allocation of this resource, but also controls a majority of the spectrum for its owns uses. Resolving this tension between the government as allocator of spectrum rights and the government as spectrum consumer is the key to sound spectrum policy. When the right balance is struck innovation, market forces, and consumer demand reveal the highest and best use of the spectrum: the government has access to the systems it needs to perform its critical missions, and consumers and economy enjoy the services and productivity gains enabled by new technologies. However, when this tension between the government as user and the government as regulator goes unresolved, the government becomes a bottleneck—keeping spectrum from its highest and best use.

While reallocating underutilized government-controlled spectrum is the best way to get large swaths of spectrum for commercial mobile use, the broadcast incentive auction and numerous secondary market transactions are interim options for combatting a potential spectrum deficit.

This multi-prong approach is being embraced by industry, but policymakers need continuing pressure to do everything in their power to free up more spectrum for commercial mobile broadband. The price of slow, heavily regulated action compromises critical wireless services for millions of American mobile users.

II. Repurposing Government Spectrum is Key to Industry’s Ability to Provide Service Consumers Want and Demand

The U.S. government holds the greatest amount of prime spectrum resources. Some estimates say the government controls almost two-thirds of this sought after spectrum.2 However, discussions to free up these resources for higher use in the commercial sector have largely stalled, as agencies are unwilling to disclose their actual spectrum needs or relinquish underused resources.

To combat this, the White House released a Presidential Memorandum last June3 directing government agencies to move toward repurposing their spectrum for commercial use. The Memorandum directs NTIA, an arm of the Department of Commerce, to address federal spectrum needs and develop a plan for giving agencies incentive to share or relinquish spectrum, something that has been discussed but not implemented in the past. The Office of Science and Technology Policy put out a Request for Information this week regarding federal spectrum, asking for public input on how to structure these moves.

Yet despite several deadlines, accountability is low and the chances for successfully getting more wireless spectrum are slim in the current environment. While the wireless industry prefers clearing, the President’s Council of Advisors on Science and Technology is pushing for spectrum sharing. The Pentagon is hesitant to give up spectrum to protect mission critical capabilities, and has only recently agreed to relocate from the 1755-1780 MHz band after years of collaborative work with wireless companies seeking to use the band for commercial services.4 And other government agencies have been less than forthcoming about actual spectrum needs and usage.

These obstacles must be addressed so federal agencies can be more efficient and spectrum resources can be allocated to their highest use. With the greatest amount of usable spectrum in the hands of these government entities, collaboration and cooperation with the wireless sector is the only path forward to avoid the consequences of a spectrum shortage for American wireless users.

III. Interim Options For Alleviating the Spectrum Crunch

While the industry pushes the Administration towards freeing up underutilized government resources, there are few options for getting more spectrum into the marketplace faster. Those opportunities need to be optimized to produce the greatest amount of spectrum for commercial use while federal spectrum initiatives slowly begin to take shape.

A. Promote Secondary Market Transactions

Low inventory, and a minimal number of new auctions to reallocate spectrum for mobile, has led to a steady stream of secondary market transactions among wireless providers. Spectrum holdings shift continuously as wireless companies privately buy, sell, and swap bands of spectrum to bolster their own market position. Sprint recently sold to Japanese-owned Softbank,5 T-Mobile merged with MetroPCS,6 and AT&T is seeking to acquire Leap Wireless,7 to name a few. The secondary market is the only way for providers to quickly gain access to new bands of spectrum and bring new and upgraded services to their customers.

For secondary market transactions to be successful as a useful tool for repurposing underutilized spectrum, existing markets need to be as open as possible. Industry stakeholders need maximum flexibility, with technology and business-neutral rules and timely merger & acquisition reviews. Without flexibility, prescriptive rules will suppress the innovation and investment that have been a hallmark of the wireless industry and have led to smartphones, tablets, and streaming services.

Policymakers must allow consumer demand to drive the best use of spectrum. Regulatory intervention to redirect this scarce resource will hinder the competitive market instead of letting it flourish.

B. Advance Existing Spectrum Auctions

Currently, the Federal Communications Commission is developing the first ever spectrum incentive auction.8 The incentive auction will repurpose spectrum given up by broadcasters in the 600 MHz band for commercial wireless providers. Unfortunately, the auction process and its ultimate success may be slowed by a heavy-handed regulatory approach that seeks to limit participation.

Other rulemakings are also in progress to get spectrum into the hands of industry stakeholders that need it. For instance, the Commission is currently auctioning spectrum in the 1915-1920 MHz and 1995-2000 MHz H Block9 and is planning to auction AWS-3 band within the next year as well. Additionally, the FCC is working to repurpose spectrum in the 3.5 GHz and 5 GHz bands,10 which will allow the most efficient use of the bands, including sharing where necessary. However, the process for getting this spectrum into the hands of providers who will use it is long, as the auction itself, clearing, and build out will take several years.

Chances of ultimate success in these auctions are suspect. For instance, the incentive auction depends on an array of factors, such as broadcaster participation and eligibility rules.

The original goal of the reverse auction reclaiming underused broadcaster airwaves was to clear up to 120 MHz of spectrum for wireless.11 Broadcasters are being asked to voluntarily give up their spectrum and repack to a lower channel or sell their spectrum back to the government. If not enough broadcasters choose to participate in the auction, the amount of spectrum may dwindle considerably, leaving less for wireless providers to bid on and ultimately put to use for their consumers.

While regulatory intervention may detract from the success of the incentive auction and secondary market transactions, these are the only options for getting more spectrum into the pipeline for wireless since government agencies are slow to give up their own spectrum resources for reallocation to commercial mobile services.

IV. Conclusion

Without more spectrum, the wireless ecosystem cannot continue to innovate and evolve, bringing new high-speed, high-tech services to consumers who increasingly demand and rely on mobile connectivity in their everyday lives. Policymakers in Congress and the Administration must work towards repurposing government held spectrum for commercial services as soon as possible and without additional regulatory barriers.

*John M. R. Kneuer, is the founder of JKC Consulting, LLC, and a Senior Partner at Fairfax Media Partners. From 2003-2007, Mr. Kneuer served first as the Deputy Assistant Secretary and then as the Assistant Secretary of Commerce and Administrator of the National Telecommunications and Information Administration under President George W. Bush.

** Rachael M. Bender is the Policy Director at Mobile Future, a coalition of wireless technology and communications companies and non-profit organizations. She focuses on spectrum, technology and mobile innovation issues.

2 President’s Council of Advisors on Science and Technology (PCAST), Report To The President: Realizing The Full Potential Of Government-Held Spectrum To Spur Economic Growth, at p. 8 (2012), available athttp://www.whitehouse.gov/sites/default/files/microsites/ostp/pcast_spectrum_report_final_july_20_2012.pdf.